Starbucks is considering its options for dealing with a Chinese market that is suddenly facing the dual headwinds of a bad economy and fast-growing, well-funded competitors flooding the market with cheap coffee, including strategic partnerships.
The company reiterated this on Thursday, after a Bloomberg report that the Seattle-based coffee shop giant was considering a sale of part of its China business.
“We are fully committed to our business and partners, and to growing in China,” the company said in a statement. “As we said on our Q4 earnings call, Brian (Niccol, the company’s CEO) is spending time to better understand our operations as well as the macro and competitive challenges in China. We are working to find the best path to growth, which includes exploring strategic partnerships.”
But China may still need to wait a bit. Niccol took over as CEO in September intent on reversing a worsening sales slide in the U.S. Starbucks’ traffic in the U.S. plunged 10%, and it faces a host of challenges, like overly complicated operations, expensive drinks and Middle Eastern politics.
Niccol has largely focused on its U.S. market since taking over in September, though the company did reconfigure management of Starbucks China. He has said he wants to spend time in China before making a decision on what to do about the market.
“I need to spend time there to better understand our operations and the market,” he said. “All indications show me the competitive environment is extreme, the macro environment is tough and we need to figure out how we grow in the market now and into the future. In the meantime, we continue to explore strategic partnerships that could help us grow in the long-term.”
Niccol has yet to visit China.
The issue illustrates the complexity of the Starbucks revitalization effort. The company has had one of the worst years in its history, and not just due to its domestic weakness.
Sales in the U.S. and in China—its two biggest markets—both started to struggle at roughly the same time, though for different reasons. The result led the company to oust its CEO after only a year, plus a six-month training period, and lure Niccol away from Chipotle Mexican Grill. It was the first time Starbucks had ever plucked an outsider with restaurant industry experience to take over as CEO.
Same-store sales declined 14% in China last quarter, as customers visited less often and spent less than they did before.
China’s economy has been struggling, which has proven challenging for a number of chains there. But the competitive landscape has also changed, as fast-growing competitors like Luckin Coffee and Cotti Coffee flood the market with cheap beverages and add locations at a breakneck pace.
Starbucks said publicly even before the CEO change that it was exploring strategic partnerships in the country.
Niccol has vowed to expand his energies to the global business, after he initially focuses on its domestic market. “Starbucks is a global company,” he said in his initial open letter describing his early plan for Starbucks. “We operate in 87 markets around the world, where thousands of talented green-apron partners share their love of coffee with customers every day. I know I have much to learn from these outstanding teams and I look forward to getting on the road and spending time with them.”
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